• Maintain BUY (TP: RM11.86). TENAGA 9MFY23 core PATAMI of RM1.93bn was below our estimate and consensus at 53.8% and 47.4% respectively. 3QFY23 headline surged to RM856mn (2QFY23 PATAMI: RM214mn) thanks to foreign exchange translation gain and net reversal on impairment of financial instruments. To note, 2Q23 recorded a forex translation loss at RM453.5mn (vs 3Q23: gain of RM62.9mn) due to weaker Ringgit against USD. No dividend declared. We cut our earnings for FY23F, FY24F, and FY25F lower to RM2.5bn, RM3.6bnRM4.2bn in the light of revision in fuel cost. Reiterate a BUY call on TENAGA with lower DCF-derived TP of RM11.86.

• Key highlights. TENAGA revenue escalated 3.9% YoY to RM13.5bn stemming from higher sales of electricity of 3.4% or by RM496.2mn in current quarters. ICPT on the other hand, decreased by 67.3% to RM1.9bn compared to RM6.1bn in 3Q22. Thus, earnings slightly narrowed by 3.7% to RM856mn (3Q22: RM889mn) due to persistence negative fuel margins, offset by lower tax expenses and gain in foreign exchange translation. Notably, the Group registered a negative fuel margin of RM767.9mn in 9MFY23 (vs 9MFY22: positive fuel margin of RM916.7mn).

• Earnings Revision. We tweaked our FY23F, FY24F, and FY25F lower to RM2.5bn, RM3.6bn, and RM4.2bn as we revised the fuel cost, particularly coal.

• Outlook. We anticipate that TENAGA's negative fuel margin will improve in the coming quarters, in tandem with declining coal prices, the expectation of a strengthening Ringgit against the USD, and stronger electricity demand. Overall, we like TENAGA as we expect the Group to deliver resilient earnings driven by exponential growth in its regulated asset base through massive investments in the 'grid of the future,' decarbonisation efforts, and as the largest key beneficiary from the National Energy Transition Roadmap (NETR).

Source: BIMB Securities Research - 27 Nov 2023